Over the next five to 10 years, marijuana is expected to become the greatest thing since sliced bread. Following a more than tripling in legal worldwide sales between 2014 and 2018 to $10.9 billion, various estimates suggest that global weed sales could soar to as high as $200 billion by 2029/2030. These are growth rates typically reserved for technology companies, not businesses growing and processing a plant.

But in recent months, cannabis has lost its luster. A myriad of supply and tax issues throughout North America, coupled with subpar operating results and clear trust issues, have sent pot stocks considerably lower. And as these issues have cropped up, short sellers have been busy bolstering their stakes in certain marijuana stocks.

Between July 14 and Aug. 14, the number of shares held by short sellers rose by a minimum of 33%, according to data from YCharts, in five popular Canadian pot stocks.

A cannabis leaf laid within the outline of Canada's red maple leaf, with rolled joints and a cannabis bud to the left of the flag.

Image source: Getty Images.

OrganiGram Holdings: Short interest up 63%

Arguably the biggest surprise on this list is the substantial spike higher in short shares held in New Brunswick-based grower OrganiGram Holdings (NASDAQ:OGI). Over the noted one-month period, shares held short rose from 1.88 million to 3.06 million, with two factors likely to blame.

First, as noted, we've seen persistent supply issues in Canada since recreational marijuana sales began on Oct. 17, 2018. Even with Health Canada implementing a fix to help resolve its cultivation and sales license backlog, these solutions are going to take time to work. This means the likelihood of ongoing supply chain constraints for OrganiGram, and pretty much every single company on this list.

The other factor is that OrganiGram's fiscal third-quarter operating results yielded a wider-than-expected loss. Interestingly, without any one-time benefits or expenses included, OrganiGram was on track to produce a nominal operating profit. Only a small number of growers are anywhere near reporting an operating profit at the moment. However, near-term expenses tied to the rollout of derivatives, coupled with supply issues, are likely to keep OrganiGram in the red for the time being.

A man in a suit holding a stack of cash behind his back with his fingers crossed.

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CannTrust Holdings: Up 53%

Now, when it comes to Ontario-based CannTrust Holdings (NYSE:CTST), there's no question why short interest is on the rise.

In early July, CannTrust announced that it had been growing unlicensed marijuana in five rooms at its flagship Niagara facility for a period of six months (Oct. 2018 – March 2019), with these rooms subsequently becoming licensed in April. Since this announcement, CannTrust wound up firing its CEO Peter Aceto, who was apparently aware of this ongoing deception, and had its sales temporarily suspended by Health Canada while it awaited punishment.

This past week, the verdict was handed down: an official suspension of the company's cultivation and sales licenses until the company regains compliance. As outlined by Health Canada, compliance will entail a stronger inventory tracking system, improved compliance knowledge among key personnel, and an effort to recover illicitly produced and shipped cannabis.

While the outcome could have been considerably worse, there's no telling how long it could take before CannTrust regains its licenses. For now, short sellers remain firmly in control.

A smoldering cannabis bud that's beginning to turn black.

Image source: Getty Images.

Aphria: Up 43%

Embattled pot stock Aphria (NYSE:APHA) has also had a significant increase in shares held short, with a rise of 43% to 29.3 million shares. Nearly 12% of the company's outstanding shares are currently being held by investors who want to see it decline.

Oddly enough, it was Aphria's better-than-expected fiscal fourth quarter report that appears to have attracted these pessimists. In that report, Aphria delivered a 158% sequential-quarter increase in adult-use marijuana sold, as well as a surprise profit. Shares of the company wound up rallying 41% on the day after released its results, sparking the fire that attracted short sellers.

You see, despite a generally improved quarterly report, the bulk of Aphria's sales were derived from its pharmaceutical distribution business, CC Pharma, which was acquired in January. If investors were to solely focus on marijuana, Aphria is yet to be profitable on an operating basis. 

What's more, Aphria, like CannTrust, is battling investor trust issues. Aphria's acquisition of Latin American assets came under fire in December via a short-seller report from Quintessential Capital Management and Hindenburg Research. Even though an independent committee found that Aphria had paid a reasonable price for these assets, the company wound up taking a 50 million Canadian dollar writedown on the value of its Latin American assets a few months later.

A man in a suit giving the thumbs-down sign.

Image source: Getty Images.

Aurora Cannabis: Up 34%

Not even the largest marijuana producer in the world, Aurora Cannabis (NYSE:ACB), can escape the grip of short sellers. Over the noted one-month period, Aurora saw its shares held short spike by 34% (more than 29 million shares) to 116.5 million.

Aurora has a laundry list of issues it's contending with, all of which have contributed to its recent increase in short shares held. For instance, international sales, which represent a huge component of Aurora's long-term growth plan, have been growing at a snail's pace. Overseas growth is unlikely to take off until domestic demand has been met; and supply issues have kept that from happening.

We've also seen Aurora struggle on the operating front. Even with improved production, the company wound up missing its own sales guidance from five weeks prior, and whiffed on its adjusted EBITDA which was predicted to turn positive on a recurring basis early in the calendar year. Aurora, like most big-name producers, looks as if it'll generate a full-year loss in 2020, despite a steady increase in sales.

And don't overlook the company's goodwill. Currently lugging around CA$3.17 billion in goodwill (58% of total assets) on its balance sheet, Aurora looks like a prime candidate for a writedown in the not-so-distant future.

A large dried cannabis bud lying atop a messy pile of one hundred dollar bills.

Image source: Getty Images.

HEXO: Up 33%

Keeping with the theme, Quebec-based HEXO (NYSE:HEXO) has seen its shares held short rise from 19.6 million in mid-July to 26.1 million in mid-August – an increase of 33%.

Similar to OrganiGram's situation, the most identifiable catalyst that's been weighing on HEXO's share price of late is supply concerns. HEXO's recreational cannabis sales haven't improved much on a sequential quarterly basis, which made its previously $1 billion-plus valuation a hard pill to swallow for Wall Street and investors.

Making matters worse, HEXO has not been afraid to spend aggressively to put itself in position to gobble up early stage market share. HEXO has extraction-service agreements in place with the likes of Valens GroWorks, has more than 600,000 square feet of facility space set aside for processing and manufacturing cannabis goods, and plans to roll out a line of nonalcoholic-infused beverages via its joint venture with Molson Coors Brewing when the green flag waves on derivatives in Canada by mid-December. Unfortunately, these expansion efforts have resulted in higher near-term costs with little in the way of sales. Translation: HEXO is losing money and may not have any chance at recurring profits until next year.

With HEXO's share price down more than 50% since late April, short sellers appear to have the company's number for the time being.